Marciano v. Crowley

The opinion of the court was delivered by: John T. Curtin United States District Judge

This case was originally filed in New York State Supreme Court, Erie County, on March 19, 2008.*fn1 On April 21, 2008, defendants filed a notice of removal on the basis of diversity jurisdiction. Item 1. Presently before the court is defendants' motion to dismiss the complaint, filed April 22, 2008. Item 2. Plaintiffs filed a response to the motion on June 2, 2008. Item 9. Defendants chose not to file a reply. For the following reasons, the motion to dismiss is granted in part and denied in part.

BACKGROUND and FACTS

In their complaint, plaintiffs allege that Joseph Marciano, a resident of Erie County, is the principal of Back to Health Incorporated ("BTHI"), a New York corporation. Item 1, Exh. A, ¶¶ 1, 2, 8. Defendant Jack Crowley, a resident of Pennsylvania, is the principal of Atlantic Medical Specialties, Inc. ("AMS"), a Pennsylvania corporation transacting business in New York. Id., ¶¶ 3, 4, 9. Plaintiffs allege that Crowley/AMS acted as a sales representative for Pulmonetic Systems, Inc., a Delaware corporation that manufactures medical equipment, and that plaintiffs were a sub-representative. Id., ¶¶ 5, 10, 12. Plaintiffs allege that the parties agreed that plaintiffs "would receive 75% of the Crowley/AMS Commission on sales of Pulmonetic Systems products brought about by the efforts of Plaintiffs." Id., ¶ 14. Plaintiffs further allege that they made a sales presentation to the New York State Department of Health ("DOH") in March 2006 and that, as a result of their efforts, a contract was secured for the sale of 1700 ventilators to New York State. Id., ¶¶ 15, 16. The contract was divided into two shipments, each of 850 ventilators. After the first shipment, "in 2006 and/or early 2007" (id., ¶ 18), defendants earned a commission of $416,202.50 and paid plaintiffs $230,144.58. After the second shipment, "in 2007 and/or early 2008" (Id., ¶ 22), defendants earned another commission of $416,202.50, and paid nothing to plaintiffs. Id., ¶¶ 17-24. Plaintiffs allege that they should have received two commissions of $312,151.88. Id., ¶¶ 21, 25. The relationship between the parties was terminated by Crowley/AMS on March 2, 2008. Id., ¶ 12.

Plaintiffs have asserted four claims against the defendants sounding in breach of contract, quantum meruit, and unjust enrichment.*fn2 The plaintiffs have withdrawn a cause of action for an accounting. Item 9, p. 12.

In their memorandum of law in support of the motion to dismiss, defendants set forth several arguments. First, they contend that all claims against defendant Crowley should be dismissed as plaintiffs have failed to set forth facts to justify piercing the corporate veil.

Additionally, they argue that the breach of contract claim should be dismissed because the oral agreement is unenforceable under the Statute of Frauds.*fn3

In response, plaintiffs contend that they have sufficiently alleged facts against defendant Crowley in his individual capacity, and have asserted an enforceable oral contract. Plaintiffs also note that defendants have failed to offer any argument in support of dismissing the quantum meruit or unjust enrichment claims.

The court has determined that oral argument is not necessary. For the reasons that follow, the motion to dismiss is granted in part and denied in part.

DISCUSSION

To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitle[ment] to relief.'" Id., at 557 (citation omitted).

Turning to defendants' first argument, that plaintiffs have failed to set forth a claim against Crowley individually and insufficient facts to pierce the corporate veil, the court notes that a federal district court sitting in diversity applies the substantive law of the forum state, including that state's choice of law rules. See Lazard Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1538-39 (2d Cir.), cert. denied, 522 U.S. 864 (1997). Under New York choice of law, the law of the state of incorporation is used to determine whether the corporate veil should be pierced. See Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995) (citation omitted). Accordingly, because AMS is a Pennsylvania corporation, Pennsylvania law governs the veil-piercing question.

Plaintiffs contend that they have asserted direct claims against both Crowley and AMS and thus are not required to plead facts sufficient to pierce the corporate veil.*fn4 In the complaint, plaintiffs allege that "Plaintiffs and Crowley/AMS entered into a contract for the payment of commissions resulting from the sale of Pulmonetic Systems' products to the DOH." Item 1, Exh. A, ¶ 28. Plaintiffs further allege that they performed all obligations under the contract and that defendants are in breach. Id., ¶¶ 29-30. While plaintiffs have named Crowley, he is identified as the principal of AMS, and the allegations against him concern actions taken in his capacity as the principal of the corporation. Generally, a corporate officer is not personally liable for a corporation's debts or contractual obligations, unless the officer expressly promises payment in his individual capacity or otherwise voluntarily assumes liability. Param Technologies, Inc. v. Intelligent Home Solutions, Inc., 2005 WL 2050446, *6 (E.D.Pa. August 25, 2005); see, e.g., In re Estate of Duran, 692 A.2d 176, 179 (Pa.Super.Ct. 1997); Kiska v. Rosen, 124 A.2d 468, 469-70 (Pa.Super.Ct. 1956); Weimer v. Bockel, 194 A. 318, 321 (Pa.Super.Ct. 1937). Accordingly, defendant Crowley is insulated from liability by the corporate form unless plaintiffs allege facts sufficient to pierce the corporate veil.

Under Pennsylvania law, a court may disregard the existence of a corporation to make its individual principals liable for the debts of that corporation through the equitable remedy of piercing the corporate veil. In re Blatstein, 192 F.3d 88, 100 (3d Cir. 1999). The alter ego theory comes into play in piercing the corporate veil when one seeks to hold liable an individual owner who controls the corporation. See S.T. Hudson Engineers, Inc. v. Camden Hotel Dev. Assoc., 747 A.2d 931, 936 (Pa.Super.Ct. 2000); Miners, Inc. v. Alpine Equip. Corp., 722 A.2d 691, 695 (Pa.Super.Ct. 1998) (citing Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1521 (3d Cir. 1994), aff'd, 514 U.S. 938 (1995)). Although the corporate form exists to shield shareholders from liability, Pennsylvania courts will not hesitate to treat as identical the corporation and the individuals owning all its stock and assets whenever justice and public policy demand. Good v. Holstein, 787 A.2d 426, 430 (Pa.Super.Ct. 2001). Although there is no definitive test under Pennsylvania law, courts apply a totality of the circumstances test when determining whether to pierce the corporate veil and impose alter ego liability. First Realvest, Inc. v. Avery Builders, Inc., 600 A.2d 601, 604 (Pa.Super.Ct. 1991). There are several factors which courts have considered in making this determination: undercapitalization, failure to adhere to corporate formalities, substantial intermingling of corporate and personal affairs, non-payment of dividends, insolvency of the debtor corporation, siphoning of funds from the corporation by dominant shareholders, non-function of other officers and directors, absence of corporate records, whether the corporation is a mere facade for the operations of a common shareholder or shareholders, and use of the corporate form to perpetrate a fraud. Hudson United Bank v. Pena, 2005 WL 736603, *7 (E.D.Pa. March 30, 2005); Lumax Industries, Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995).

Here, plaintiffs have not alleged any facts to suggest that defendant Crowley acted as the alter ego of AMS. Accordingly, the claims against Crowley in his individual capacity are dismissed. However, this dismissal is without prejudice, and plaintiff will be allowed to amend the complaint if, following discovery, the ...

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